Apple Plans Web Radio Challenge to Pandora

Ben Sisario and Nick Wingfield, The New York Times

Friday, 7 Sep 2012 | 9:37 AM ETThe New York Times

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In a move that could shake up the growing field of Internet radio, Apple plans to develop a service that would compete with Pandora Media by sending streams of music customized to users’ tastes, three people briefed on the plans said late Thursday.

Apple, which has already dominated the field of digital music with its iTunes store, is in the early stages of negotiating with the major record labels for the service, and the full scope of its plans were not clear, according to these people, who asked not to be identified because the negotiations are private.

Apple’s service would probably take the form of a preinstalled app on devices like iPhones and iPads and might be able to connect to users’ iTunes accounts to judge their tastes.

By offering streams customized to each user, Apple’s program would compete with Internet radio services like Pandora, Slacker and iHeartRadio, which is offered by the radio giant Clear Channel Communications.

But while most such services operate under limited licenses that restrict what they can do with the music — for example, limiting the number of times songs by particular artist can be played within an hour — Apple is seeking direct licenses with record labels that would give the company more flexibility in using music, according to the people briefed on its plans.

Like Pandora, Apple’s radio service would have advertising, carried through Apple’s iAd platform. Whether Apple would then share part of the ad revenue with labels, or pay them some other licensing fee, was unclear. It was also unclear whether the service would be free or require a subscription. Pandora with ads is free, although its users can pay $36 a year for a service that eliminates the ads.

An Apple spokesman, as well as representatives of Sony Music, EMI and the Warner Music Group all declined to comment. A spokesman for the Universal Music Group could not be reached.

Apple’s plans were first reported by The Wall Street Journal on Thursday evening.

Apple’s service did not seem to be imminent; indeed, given the length of time it can take to negotiate licenses with the major labels, it could be months away. On Wednesday, Apple is expected to introduce its newest smartphone, the iPhone 5, but the people briefed on the company’s plans said it was unlikely that the custom radio feature would be part of that presentation.

Further complicating the process of licensing negotiations is the fact that much of the highest-level business of the music industry has ground to a near-halt this summer as the labels await decisions by government regulators in Europe and the United States about the Universal Music Group’s $1.9 billion takeover of EMI Music.

The move by Apple perplexed some analysts, who noted that the Internet radio business seemed too small — accounting for less than $1 billion a year in revenue, by some estimates — for Apple to bother with. Established players like Pandora also already distribute their services through apps on Apple’s devices.

“What’s in this for Apple?” asked Michael Pachter, an analyst at Wedbush Securities. “Pandora already does a great job, so does iHeartRadio, so does Last.fm. Why do we need another one?”

But Apple’s clout in music, which began building when the company introduced the iPod in 2001, could face threats as more consumers choose to stream music over the Internet, rather than purchasing it. Steven P. Jobs, Apple’s late chief executive, many times dismissed calls for Apple to offer music subscription services, saying that most consumers did not want to rent songs.

In recent years, though, with the proliferation of smartphones, iPads and wireless Internet access that perpetually connects those devices to online sources of music, Apple’s iTunes approach to selling songs for $1 or so apiece has come to seem antiquated in comparison with music streaming services like Spotify and others.